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Simple English definitions for legal terms
special-facts rule
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A quick definition of special-facts rule:
Special-Facts Rule: This is a rule that says if someone who is in charge of a company (like a director or officer) knows important information about the company, they have to tell someone who wants to buy or sell stock in the company if certain special circumstances apply. These special circumstances might be things like the person buying or selling the stock not knowing much about business, or the stock being hard to value. This rule is different from the "majority rule" that usually applies in these situations.
A more thorough explanation:
The special-facts rule is a principle in corporate law that requires directors or officers to disclose material inside information to shareholders when engaging in a stock transaction under special circumstances. This rule applies when the shareholder lacks business acumen, the shares are closely held with no readily ascertainable market value, or the director or officer instigated the transaction.
For example, if a director of a company knows that the company is about to release a new product that will significantly increase the value of the company's stock, and the director sells his or her shares before the announcement, the director must disclose this information to any shareholders who are buying the shares. This is because the director has inside information that the other shareholders do not have, and the director is using this information to gain an unfair advantage.
Another example of the special-facts rule is when a director or officer of a closely held company wants to sell his or her shares to a shareholder who lacks business acumen. In this case, the director or officer must disclose any material inside information that could affect the value of the shares, such as pending lawsuits or regulatory investigations.
The special-facts rule is an exception to the majority rule, which states that directors and officers have no duty to disclose inside information to shareholders. The special-facts rule recognizes that in certain circumstances, shareholders may be at a disadvantage and need extra protection.